Chapter 23: Q15RQ (page 1305)
Question:List the fixed overhead variances, and briefly describe each.
Answer
The fixed overhead variances can be in the form of fixed overhead cost variance and fixed overhead volume variance.
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Matching terms
Match each term to the correct definition.
Terms Definitions
a. Flexible budget
b. Flexible budget variance
c. Sales volume variance
d. Static budget
e. Variance
1. A summarized budget for several levels of volume thatseparates variable costs from fixed costs.
2. A budget prepared for only one level of sales.
3. The difference between an actual amount and thebudgeted amount.
4. The difference arising because the company actuallyearned more or less revenue, or incurred more or lesscost, than expected for the actual level of output.
5. The difference arising only because the number ofunits actually sold differs from the static budget units.
Question:Use the following information to prepare a standard cost income statement for Mitchell Company for 2018.
Cost of Goods Sold (at standard) \( 366,000
Direct Labor Efficiency Variance \) 19,500 F
Sales Revenue (at standard) 570,000
Variable Overhead Efficiency Variance 3,300 U
Direct Materials Cost Variance 7,200 U
Fixed Overhead Volume Variance 12,500 F
Direct Materials Efficiency Variance 2,700 U
Selling and Administrative Expenses 71,000
Direct Labor Cost Variance 42,000 U
Variable Overhead Cost Variance 1,700 F
Fixed Overhead Cost Variance 2,100 F
Understanding variance relationships
Complete the table below for the missing variances.
Total Flexible Budget Product Cost Variance (a) |
Total direct material variance (b) | Total direct labor variance (c) | Total Manufacturing Overhead Variance (d) |
Direct material cost variance | Direct material efficiency variance | Direct Labor Cost Variance | Direct Labor Efficiency Variance | Total Variable Overhead Variance | Total fixed overhead variance |
\(310F | \)165U | \(160U | \)415F | (e) | (f) |
Variable Overhead Cost Variance | Variable Overhead Efficiency Variance | Fixed Overhead Cost Variance | ||||
\(525U | \)575F | $50F |
Cell One Technologies manufactures capacitors for cellular base stations and other communications applications. The company’s July 2018 flexible budget shows output levels of 6,000, 7,500, and 9,500 units. The static budget was based on expected sales of 7,500 units.
CELL ONE TECHNOLOGIES Flexible Budget For the Month Ended July 31, 2018 |
Budget Amount per Unit |
Units 6,000 7,500 9,500 |
Sales Revenue \(21 \)126,000 \(157,500 \)199,500 |
Variable Expenses 10 60,000 75,000 95,000 |
Contribution Margin 66,000 82,500 104,500 |
Fixed Expenses 55,000 55,000 55,000 |
Operating Income \(11,000 \)27,500 \(49,500 |
The company sold 9,500 units during July, and its actual operating income was as follows:
CELL ONE TECHNOLOGIES Income Statement For the Month Ended July 31, 2018 |
Sales Revenue \)206,500 |
Variable Expenses 100,100 |
Variable Expenses 106,400 |
Fixed Expenses 56,000 |
Operating Income $504,00 |
Requirements
1. Prepare a flexible budget performance report for July.
2. What was the effect on Cell One’s operating income of selling 2,000 units more than the static budget level of sales?
3. What is Cell One’s static budget variance for operating income?
4. Explain why the flexible budget performance report provides more useful information to Cell One’s managers than the simple static budget variance. What insights can Cell One’s managers draw from this performance report?
Question:This Try It! continues the previous Try It! for Tipton Company, a shirt manufacturer. During June, Tipton made 1,200 shirts but had budgeted production at 1,400 shirts. Tipton gathered the following additional data:
Variable overhead cost standard \(0.50 per DLHr
Direct labor efficiency standard 2.00 DLHr per shirt
Actual amount of direct labor hours 2,520 DLHr
Actual cost of variable overhead \)1,512
Fixed overhead cost standard \(0.25 per DLHr
Budgeted fixed overhead \)700
Actual cost of fixed overhead $750
Calculate the following variances:
13. Variable overhead cost variance
14. Variable overhead efficiency variance
15. Total variable overhead variance
16. Fixed overhead cost variance
17. Fixed overhead volume variance
18. Total fixed overhead variance
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